At an AEI conference last June, Professor Kenneth M. Lehn and his colleagues presented a ground-breaking paper that compared the effect of market stress—when the markets receive new positive or negative information—on the bid-ask spreads in the NYSE, NASDAQ, and the electronic communications networks (ECNs). The June paper indicated that ECNs performed better than the other trading venues for large capitalization stocks and that the NYSE performed best for low capitalization stocks. In a new paper, the Lehn group now compares these trading venues—for the period 1999–2003—for market quality under similar conditions of stress.
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